Initially, Citi says the commercial real estate assets will only comprise a small portion of the combined portfolio, but over time, as much as 25% of NLY shareholder equity capital could be invested in real estate assets other than agency securities. As of Q3, CXS held $732M of commercial real estate loans, $40M of preferred equity and $79M of equity investments in real estate. NLY’s agency MBS portfolio totaled $130B as of last qtr.

Citi also speculates that another bidder for CreXus could emerge. From Citi:

[T]he environment has become more challenging for the pure-play agency REITs, where portfolio spreads have tightened on elevated levels of prepayments and tighter reinvestment yields. We believe [Annaly's] transaction is in response to pressures (and lower ROEs) in the agency business, and is a realization the agency only model may be more challenging moving forward given QE3, higher prepayments, and an eventual Fed rate hike. We would not be surprised to see other agency focused REITs shift more capital into commercial real estate and/or non-agency residential assets. Also, as spreads have tightened in commercial lending, it is possible that another player could bid for CreXus. As a reminder, STWD[Starwood Property Trust] offered $14/share for CreXus in March 2011, before ultimately getting rejected by CXS’s Board.

Citi calls the offer somewhat surprising, and says the transaction could cause some shareholder turnover, but says the transaction makes strategic sense given Citi’s positive bias towards credit assets at this point in the cycle. More from Citi:

For further diversification, some investors have suggested NLY could pursue Chimera (CIM, $2.4B mkt cap), a non-agency residential mortgage REIT within the Annaly umbrella. Given the modest size of the acquisition, we don’t expect much of a lasting impact to the stock as agency and credit sensitive mortgage REITs tend to trade around book value. In the mortgage REIT sector, we prefer STWD in the commercial REIT space and PMT [PennyMac Mortgage Investment Trust]on non-agency side.

Citi estimates the deal to be ~4% accretive to 2013 EPS, assuming the transaction is funded with idle cash on the balance sheet and not a transition out of agency assets. Citi also calls the deal “book value neutral,” saying NLY’s Q3 ROE was 10.78% and that the CreXus business as it stands today is more of a high-single-digit ROE.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.